Despite wider reinsurance market headwinds, casualty remains an attractive market for reinsurers, especially as they look for opportunities to diversify away from property catastrophe, says Nigel Light, Global Casualty Leader, Aon Reinsurance Solutions.
Light’s comments stem from Aon Reinsurance Solutions’ international casualty report, which suggests that the market remains largely stable compared to the challenging property market post 1/1 renewal.
Further, Light notes that notwithstanding wider macroeconomic and political uncertainty, casualty capacity remains plentiful, as reinsurers have demonstrated an increased appetite for the class.
He writes, “Strong underlying rates in casualty, coupled with de-limited risk, provide reinsurers looking for growth with healthy portfolios to reinsure.
“The supply of casualty reinsurance capacity continued to grow at January 1. Renewals on pro-rata resulted in commissions flat or nudging up, whilst excess of loss reinsurance was generally a low single-digit risk-adjusted rate increase.”
Exceptions to this were non-standard structures and/or poorly performing portfolios where reinsurers took stronger corrective action.
Light cites the fact that motor renewals in the UK and Europe were particularly challenging, with some markets facing double-digit rate increases that were chiefly driven by rising claims inflation and changes to legal and personal injury compensation regimes.
Though despite this, he notes that the demand-supply imbalance for property insurance creates opportunities for buyers to utilise casualty business to optimise reinsurance protection on other lines, as well as the use of legacy and structured reinsurance to release capital and manage earnings volatility.
As examples, Light states that there is currently a very healthy demand for adverse development covers and loss portfolio transfers.
This is driven by the desire to protect earnings and balance sheets from prior year loss activity while freeing up capital to grow and write business at today’s attractive prices, he says.
Concluding, Light writes, “Despite wider reinsurance market headwinds, casualty remains an attractive market for reinsurers, especially as they look for opportunities to diversify away from property catastrophe.
“Higher interest rates, together with the underlying strong rate environment and de-limited risk, are positive for future earning, and should further support a stable casualty market going forward.”